LAWRIE WILLIAMS: Gold price manipulation and spoofing – is this the norm?

A precious metals trader – from top bank JP Morgan Chase – has admitted spoofing and price manipulation over a number of years in the gold, silver, platinum and palladium markets – and is apparently naming names of others who may have been doing the same thing. The trader, John Edmonds has admitted, after investigation by the U.S. Department of Justice, to doing this over a number of years – and there is little doubt that similar activities are still happening today.

“As part of his plea, Edmonds admitted that from approximately 2009 through 2015, he conspired with other precious metals traders at the Bank to manipulate the markets for gold, silver, platinum and palladium futures contracts traded on the New York Mercantile Exchange Inc. (NYMEX) and Commodity Exchange Inc. (COMEX), which are commodities exchanges operated by CME Group Inc.

Edmonds and his fellow precious metals traders at the Bank routinely placed orders for precious metals futures contracts with the intent to cancel those orders before execution (the Spoof Orders), he admitted.

This trading strategy was admittedly intended to inject materially false and misleading liquidity and price information into the precious metals futures contracts markets by placing the Spoof Orders in order to deceive other market participants about the existence of supply and demand. The Spoof Orders were designed to artificially move the price of precious metals futures contracts in a direction that was favorable to Edmonds and his co-conspirators at the Bank, to the detriment of other market participants.

In pleading guilty, Edmonds admitted that he learned this deceptive trading strategy from more senior traders at the Bank, and he personally deployed this strategy hundreds of times with the knowledge and consent of his immediate supervisors.”

It is probably significant that the guilty plea by Edmonds was to the U.S. Department of Justice (DoJ) rather than the apparently toothless Commodities Futures Trading Commission (CFTC) – the official regulator, which dropped an investigation into this type of trading activity in the silver futures market after supposedly investigating it for five years. The suspicion, noted by Signer in his article, was that the CFTC is too closely associated with Wall Street elite to conduct a truly exhaustive investigation of allegations of price manipulation which have been made by bodies such as the often maligned Gold Anti-Trust Action Committee (GATA).

In GATA’s view the manipulations – particularly in the gold and silver markets – have been ongoing with support from Governments and Central Banks utilising the bullion banks, like JP Morgan and others, as their agents. GATA sees this primarily as attempts (seemingly successful) to suppress the gold price given that gold has, over the centuries, acted as something of a bellwether on the real state of national economies. This may be particularly true of the U.S. economy and the dollar.

If indeed Edmonds is naming names among colleagues at JP Morgan and at other trading banks, the fallout could be considerable, although these things tend to move slowly. What is likely though is that there will be a move to implement class-action civil cases from supposedly aggrieved investors against JP Morgan, as there were against Deutsche Bank when the latter effectively admitted trading irregularities in the metals markets in 2016. However, although the Deutsche Bank revelations were said to implicate a number of other major banks in similar activities, we’re not sure how far any investigations into these have progressed – hence our comment that in the legal world these things tend to move slowly.

But overall this continuing evidence that major banks are rigging the futures markets does go a long way towards vindicating GATA’s long held position on this – at least as far as the financial sector is involved in guiding markets in whichever way it sees fit. So far there is little new evidence to prove direct involvement by governments and central banks, but certainly the major banking institutions do seem to be guilty of utilising their financial clout to move markets. Was it ever thus?

The banks themselves will try to cover this involvement by saying that such trading was unauthorised – and technically it may have been. But as accusations of involvement move up the executive chain then it will be increasingly difficult for such allegations to be disproven. Given major banks’ enormous financial incentives for employees to maximise profitability by almost any means, then top executives will, no doubt, be seen as turning a blind eye to the machinations of their employees in ensuring massive corporate profitability.

In answer to the question posed by the title it does appear that the kind of practces admitted by Edmonds are indeed normal in the sector. But whether any subsequent action by the U.S. DOJ will lead to a cessation of these manipulations has to remain in doubt when there is so much money at stake as a result of these machinations of the markets.

15 Nov 2018

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London – recently described as the World’s No. 2 University (after MIT).